WTI oil gains for second week to narrow discount vs. Brent

The report showing inflation is contained may give the Federal Reserve scope to maintain its monetary stimulus program, known as quantitative easing, when the Federal Open Market Committee meets next week to review policy.

The dollar slipped as much as 0.8% today to $1.3107, the lowest level since March 8. A weaker dollar and stronger euro increase oil’s appeal as an investment alternative. The euro also rose as European leaders paved the way for a deal on financial assistance for Cyprus.

“The dollar is pretty weak and the U.S. market looks a little tighter after the Cushing inventory report,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “It looks like the path of least resistance is higher in the short term.”

Stockpiles at Cushing, the delivery point for New York WTI futures, dropped 1.53 million barrels to 49.3 million last week, the lowest level since Dec. 21, according to the EIA. Demand for gasoline jumped 3.1% to 8.63 million barrels a day, the most since Nov. 16.

Cushing Stockpiles

“The big drop in Cushing inventories is telling people that maybe the bear market is over,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It does seem like it’s bringing WTI up.”

Confidence among American consumers slumped in March. The Thomson Reuters/University of Michigan preliminary sentiment index fell to 71.8, the lowest level since December 2011, from 77.6 in February. The gauge was projected to increase to 78, according to the median estimate of 67 economists surveyed by Bloomberg.

The Standard & Poor’s 500 Index and the Dow Jones Industrial Average each dropped as much as 0.5%.

Implied volatility for at-the-money WTI crude options expiring in May slid to 17.5% at 2:37 p.m. in New York from 17.2% yesterday. The figures are down from 24.7% on Feb. 21.

Electronic trading volume on the Nymex was 423,516 contracts as of 2:37 p.m. It totaled 442,295 contracts yesterday, 19% below the three-month average. Open interest was 1.71 million contracts.